As cryptocurrency usage becomes more widespread both above and below the law, various authorities are increasingly required to perform seizures on funds used in criminal cases. Thanks to the various anonymity properties of digital coins, however, it’s proving difficult to track these forfeitures. This lack of transparency leaves critics of the government musing over the possibility that not all digital currency is being sold fairly and through the correct channels. If only there was some way of publicly recording details regarding funds acquired through forfeiture and their sale…
Seizures are Rife, Reports are Less So
There is no shortage of examples of government agencies seizing digital currencies. High profile cases like that of Alexandre Cazes, the ringleader behind global dark web marketplace Alpha Bay, and Ross Ulbricht, the mastermind behind Silk Road have involved huge sums of cryptocurrency being turned over to the government.
More recently, 513 Bitcoins were seized from a seller of counterfeit pharmaceuticals in Utah, and Fortune reports a kidnapping case in which a man was bundled into what he thought was an Uber and was forced to surrender private keys at gunpoint. Those behind the incident were able to make off with $1.8 million in ETH tokens. They promptly converted these to BTC which then soared in price. What remains unclear is who should receive all that extra cash.
There are many more examples of forfeiture involving digital currency making the total amount of seized funds incredibly difficult to work out. This is exacerbated by anonymity properties of digital coins, along with the penchant for secrecy within some of the agencies making the seizures.
A website, Forfeiture.gov, exists that documents cases of forfeiture in the States. However, their records are fleeting. They’re regularly updated and old cases are removed with the addition of new ones. In addition, there are often long periods between the seizure of assets and their appearance in any records and some sales of cryptocurrency aren’t reported at all.
It seems somewhat ironic that the very technology behind digital currency, the blockchain, could provide the transparency needed in such matters. An attorney who has worked extensively on cases of forfeiture, Alex Lakatos, feels that some form of central registry would be beneficial:
“This country is weirdly lacking in central registries… we don’t know how much property has been seized.”
Since there is no law obliging the government to provide such a ledger, one has yet to be created. It’s argued that increased transparency would likely tip criminals off to the methods used by law enforcement and thus undermine operations.
However, there are plenty who feel that this lack of transparency is completely unacceptable and promotes underhand behaviour from those working in government agencies. Clifford Histed, an attorney at K&L Gates spoke to Fortune of the historical precedent for embezzlement in cases of forfeiture:
“I’ve spent 23 years in law enforcement and, unfortunately, I believe as long as police have been seizing cash, some have been skimming it… I don’t think Bitcoin will prove any different.”
Whilst there is no hard evidence to suggest that government agents have been misappropriating funds from seizures, the ease with which it could be taking place concerns lawyers and libertarians alike. An investigation into the Marshals Service last September uncovered examples of the agency using seized funds to pay for such unnecessary luxuries as “high-end granite countertops and expensive custom artwork.” Amusingly, much of this was found at the new Asset Forfeiture Academy in Houston. Surely, with such incidents occurring and the numbers of seizures only set to grow, there should be some effort made to provide transparency to avoid allegations of corruptions.